Fed’s Beige Book Take on Economy: Modest Growth

By at 7 September, 2023, 8:11 am

by Raymond J. Keating –

What’s the latest take on the economy courtesy of the Federal Reserve’s Beige Book? To say the least, it’s uninspiring.

According to the assorted contacts that Fed staffers reach out to for each report, “economic growth was modest during July and August.” That’s underwhelming, perhaps until you realize, of course, that the Fed has been bent on trying to slow the economy in the mistaken belief that this is how inflation should be fought. For good measure, President Biden and Congress are doing nothing to improve the policy environment so as to incentivize growth-generating entrepreneurship and investment.

The Beige Book take on consumers was mixed. Manufacturers noted that easing of supply chains made it easier to meet existing orders, but “New orders were stable or declined in most Districts, and backlogs shortened as demand for manufactured goods waned.”

Challenges persisted in residential construction as well. It was noted, “One sector where supply did not become more available was single-family housing. Nearly all Districts reported the inventory of homes for sale remained constrained. Accordingly, new construction activity picked up for single-family housing. But multiple Districts noted that construction of affordable housing units was increasingly challenged by higher financing costs and rising insurance premiums.”

As SBE Council has noted before (see our latest take here), even during times when the economy and job growth might slow, labor markets, given U.S. demographics, promise to remain tight. That’s reflected in the following from the Beige Book: “Job growth was subdued across the nation. Though hiring slowed, most Districts indicated imbalances persisted in the labor market as the availability of skilled workers and the number of applicants remained constrained.”

As for inflation, the main takeaway was: “Most Districts reported price growth slowed overall, decelerating faster in manufacturing and consumer-goods sectors.”

“Modest” economic growth, of course, means an under-performing economy. Unfortunately, under-performance in the U.S. economy since 2007 (real annual GDP growth averaged 1.7 from 2007 to 2022 vs. the 3.6 average from 1950 to 2006) has led assorted “experts” and policymakers to believe that this is the new norm. That assumption itself translates into lost economic and income growth, and a reduced quality of life for all Americans. What hampers the U.S. economy can be redressed, and growth unleashed, via sound policy decisions focused on tax relief, deregulation, restrained government spending, free trade, a welcoming immigration agenda, and sound money. Get those policies right, and “modest” growth will give way to robust growth.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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